Numbers Will Do the Talking

These days, it's not easy to tell if the glass is half full or half empty in the application service provider industry.

These days, its not easy to tell if the glass is half full or half empty in the application service provider industry.

Research firm IDC came out with what should have been a cause to pop the champagne corks earlier this month, when it reported that a study of 50 ASP implementations showed an average return on investment (ROI) of 404 percent over five years. Whats more, companies paid back their investments in the ASP implementations in an average of only 1.33 years — impressive by almost any standard.

With the downturn in the economy putting the squeeze on the IT budgets of corporations of all sizes, you would think the results of the study would send a flood of new customers to providers. Well, youd be wrong.

As a matter of fact, IDC says it plans to lower its forecasts for the ASP industry as a whole during the next year or two. The company wont say by how much just yet, but suffice it to say, the industry wont meet IDCs earlier forecast of $2.1 billion in revenue for 2001.

The contradiction, IDC analyst Meredith Whalen says, comes from the fact that most companies are turning to ASPs to implement new applications — things such as Web-based time and expense management, supply chain management, customer relationship management and hosted financial apps. And with the uncertainty over the economy, corporate IT managers have been delaying decisions about spending on new projects. When they do spend, it tends to be on smaller projects designed to answer a business units specific problem or need.

On top of that, there has been concern about the financial viability of many ASPs.

But lets focus on the most important news here: The fact that IDC is lowering its growth forecasts shouldnt come as a surprise — the ASP industry has been in trouble all year. What is news is the fact that the benefits and rates of return that ASPs have been espousing are, in fact, being achieved and documented. A 404 percent average ROI is the kind of number that does its own selling in the marketplace, and as the economy turns around, IT managers will have to take a serious look.

So go ahead, fill the glass up.